The Societal Implication of the Securities Lending Market : A Public Pension Perspective
We study the functioning of the securities lending market for the prime European benchmark Treasuries, the German Bunds, in the near zero interest environment. We show that despite the high demand pressure for pledgeable collateral, most lenders are unable to extract nontrivial market rents in the opaque, decentralized securities lending market. In the long-maturity fixed income segment, where the marginal lender is likely to be a contractual savings institution, low demand elasticity would leave money on the table: Low lending fees constituting relevant but foregone income for these institutions could lead to non-negligible welfare losses for pension income dependent European citizens